ASX adds its warning that house prices are going crash

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Gotti is onto it:

The share markets’ danger signals are telling the Reserve Bank economists to leave their Martin Place bunker and go out into the real world. Go and talk to bank branch people (not CEOs) and learn how APRA rules are cutting bank lending by at least 20 over cent but usually by one third.

…Go out and talk to the vast numbers of ordinary Australians under mortgage stress who are suffering from the higher energy prices created in part by Victorian and NSW government bans or curbs on gas production.

…At this stage employment is strong and with labour shortages wages are rising. But the stock market is warning us that as the credit squeeze lowers house prices, the political turmoil is going to hit the real economy.

Yesterday saw a thumping afternoon sell-off in all things property despite calm broader markets. The banks were pulverised and both WBC and NAB are in free fall:

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Property stocks were likewise killed led by LLC but MEA and DHG also hit all time-lows and GMA is again at the cliff’s edge:

Consumer stocks were also weak though not so uniformly:

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When you consider the sequencing of events ahead it is no wonder. The RBA has one meeting left this year and it will not be changing its tune. By the time it returns in February, the downside momentum in house prices will be nasty with Sydney already below -10%.

The RBA won’t be able to cut straight away. It will need to warm markets up first with the Feb SoMP. That gets us to March without monetary relief. But around that we also have the Victorian election in November then NSW in March plus an early new year federal Budget that looks likely to cut immigration. The Hayne Royal Commission also delivers in February followed by a federal election in May that will cut negative gearing.

The RBA is not going to want to ease through any of it but this sequence of events is going to send house prices into a tailspin. It literally represents taking a chainsaw to the three house price pillars simultaneously – tax rorts (gone), immigration (gone), easy credit (gone) – in a single quarter.

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The jobs market has already turned south today and by the federal election next year will be in outright stall. That will feed into falling consumption amid falling house prices, creating the much feared feedback loop.

If the RBA waits for clear air until June ’19 to cut then it may already be too late with sentiment around house prices broken. And it will be doing so straight into the teeth of negative gearing reform anyway.

This is an unprecedented sequence of macro, credit and asset market negatives that could see house prices crash before the RBA even knows what’s happening.

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That’s the message from the ASX yesterday.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.